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1998 saw
continued consolidation in banking and depressed pricing in the company's
core insurance businesses. Industry contraction reduced our membership
base and premium income. Competition - sparked by the wholesale return of
commercial companies to the D&O market - distorted FM's pricing model.
While we fully expect the pricing situation to change, the economic effect
of fighting a two front war was reflected in First Monetary's somewhat
lackluster financial performance. Even so, the FM Board approved a
$100,000 pro-rata dividend based on 31 December 98 share values, marking
the third consecutive year dividends were declared. In aggregate, these
dividends exceed the total capital contributed to the organization by many
members.
Look beyond the current
balance sheet and you see where we are headed and cause for optimism. FM
long ago recognized that industry consolidation and insurance competition
would affect performance, and began taking steps to deal with the impact.
We started changing direction in 1994, and have progressively recast the
company along the lines of a community bank service provider. By
restructuring product delivery systems to better meet the changing needs
of community banks, we expanded our product line. In software jargon, we
became First Monetary 2.0.
Our strategy now is
focused on securing First Monetary's lead role as locator and supplier of
breaking news, specialty products and services to FDIC insured community
institutions. "The Monetary System", our industry monitoring and
product delivery mechanism, is actively being used to identify, develop
and implement risk management solutions that help community bankers work
better, work smarter and improve the franchise. These solutions take the
form of insurance products, low cost-technology, internet services or
management and marketing tools.
During 1998, we refined
the mechanism and pushed the first product associated with our
targeted-growth plan through production. Our Private Mortgage Insurance
Program holds significant promise in a market that is otherwise flat or
declining. It went live in the first quarter of 1999.
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More
and more development is being channeled through the Monetary System
pipeline. Here are the exciting results:
* In systems, we
began with the rollout of the INTERmoNETary System, a
first-ever-online portal dedicated to the promotion of community
banking and SBLI insurance services. INTERmoNETary marked the start
of the company's movement away from mono-line directors &
officers and into broad-based services. INTERmoNETary now includes
customized member web sites with top-level domain names, interactive
forms and e-mail capabilities. In a connected world where
professional web page design services remains costly, First Monetary
continues to provide a service whose marketing value increases every
day, and we do it free of charge.
* In products, we
packaged together a new Employment Practices Liability program with
a low, low $1,000 minimum premium. We made the program even more
valuable by giving members an industry standard employee handbook in
easy-to-edit word-processing format. A comparable book would cost
thousands to develop from scratch.
* In coverage
protection, we added Mortgage and Lending Discrimination Liability
coverage to our primary Directors and Officers liability and
Wrap-Around Professional liability programs. Our members are now
protected against CRA-related issues, without paying an additional
dime in premiums.
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In services, we made complimentary subscriptions to American
Banker Online, the internet version of the leading financial
services newspaper, accessible to members through a special
web portal at americanbanker.firstmonetary.com. We
complemented this service with a change to First Monitor, our
news and risk management broadcast. This publication is now
faxed daily, shaving days, even weeks, off the time it takes a
conventional newsletter to deliver the same information. FM
members get a synopsis of the day's top market, regulatory,
technology and competitive news in plenty of time to act on
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We accomplished all
this while maintaining our other outstanding member benefits, like
the capital reinvestment program and shareholders meeting
reimbursement. Discounting merger activity, 100% of our shareholders
renewed their memberships.
To sustain our
operations and growth, we must expand our membership. We expect that
the expansion and resources will come in part from the products we
are developing and in part from the markets and alliances we are now
cultivating. Growth may take some time to develop, and the near-tern
pressure on earnings will continue, but we're excited about First
Monetary 2.0 and the Monetary System. FM has the potential to be a
high performing, targeted-growth competitor, and we have a tool in
the Monetary System that can efficiently develop products and
services with considerable long-term value to the membership.
Our success would
not have been possible without the capable commitment of our Board
and their alternates, the help of my fellow officers, Chairman Dave
Swanson, Vice Chairman Richard Komosinski and Treasurer Angelo
DiLorenzo, the support of OdysseyRe in its capacity as reinsurer,
the efforts of the Monetary Team and the faith of the general
membership. I would like to thank each of you for your hard work and
commitment.
Sincerely,
Francis J. Shashaty
President & CEO
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